Many cup-with-handle bases run between seven and 13 weeks long. Why? They often appear between quarterly earnings reports.

The cup should hold a correction of no more than 35% in a normal market, although the shallower, the better. One can make room for a somewhat deeper decline within a broad-market correction.

The cup's decline and incline should be smooth and resemble each other. Some high volume on either side is often unavoidable, but too many panic-driven routs are never a good sign.

The handle should form in below-average volume. It should correct no more than 12%, although a bit more may be acceptable if it forms during a bear market.

The handle must appear in the upper half of the base. To check, first find the cup's midpoint (high + low, divide by 2). Then do the same for the handle (high + low, divide by 2). If the handle's midpoint doesn't reach as high as the cup's, you've found a potential flaw.

The buy point is 10 cents above the handle's high. When it climbs past that level in big volume — usually 40% higher than usual or more — it's a breakout. Make sure the market is in a confirmed uptrend, too. The base should show more accumulation than distribution. On a weekly chart, look at the bars showing above-average volume. Among these, up weeks should top down weeks.

In 1982, apparel firm Liz Claiborne (LIZ) was a recent IPO and built a 15-week cup with handle. 1

The cup was smooth in shape. It corrected just 20% from high to low. It had more accumulation weeks 2 than distribution weeks. The handle appeared in the base's upper half and fell just 10%. 3

Volume surged in the Aug. 6 week, 4 in the middle of the handle-building process. Would that have scared you out? Hopefully not. One week like that can in fact serve as a good shakeout.

The cup-with-handle pattern is perhaps the most common and most recognizable of all the bases. The biggest peril is not in missing one, but in jumping onto one without checking under the hood.

Investors sometimes move too fast when they see a cup with handle. There it is, they say, a cup, a handle, a breakout. What else should one be looking for? Plenty.

The cup with handle must run for seven weeks before it's valid. Anything less is a flawed pattern.

Many cup-with-handle bases run between seven and 13 weeks long. Why? They often appear between quarterly earnings reports.

The cup should hold a correction of no more than 35% in a normal market, although the shallower, the better. One can make room for a somewhat deeper decline within a broad-market correction.

The cup's decline and incline should be smooth and resemble each other. Some high volume on either side is often unavoidable, but too many panic-driven routs are never a good sign.

The handle should form in below-average volume. It should correct no more than 12%, although a bit more may be acceptable if it forms during a bear market.

The handle must appear in the upper half of the base. To check, first find the cup's midpoint (high + low, divide by 2). Then do the same for the handle (high + low, divide by 2). If the handle's midpoint doesn't reach as high as the cup's, you've found a potential flaw.

The buy point is 10 cents above the handle's high. When it climbs past that level in big volume — usually 40% higher than usual or more — it's a breakout. Make sure the market is in a confirmed uptrend, too. The base should show more accumulation than distribution. On a weekly chart, look at the bars showing above-average volume. Among these, up weeks should top down weeks.

In 1982, apparel firm Liz Claiborne (LIZ) was a recent IPO and built a 15-week cup with handle. 1

The cup was smooth in shape. It corrected just 20% from high to low. It had more accumulation weeks 2 than distribution weeks. The handle appeared in the base's upper half and fell just 10%. 3

Volume surged in the Aug. 6 week, 4 in the middle of the handle-building process. Would that have scared you out? Hopefully not. One week like that can in fact serve as a good shakeout.

In 1968, Jerry Chazen took a career gamble. He left a high-level job at a retail chain to join a much smaller textile firm. The gamble didn't pay off as he hoped. "I was seduced to leave my job as general merchandise manager at Winkelman's (a Detroit-area fashion retailer) by a good friend who ...

Liz Claiborne (LIZ) CFO Andrew Warren will leave in March in a "mutual" decision. The apparel maker also warned that EBITDA will be at the low end of prior guidance due to weak Dec. sales and margins for its Juicy Couture brand. Liz Claiborne shares fell 13%.

Liz Claiborne (LIZ) said it will rebrand itself as Fifth & Pacific Cos., now that it's sold its namesake brand, and will focus on Juicy Couture, Kate Spade and Lucky Brand. It expects the name change and new stock symbol, FNP, to become effective around May 15. Shares surged 9.3% to 9.41.

01/04/2012 06:36 PM ET

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